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Law360 (April 27, 2020, 8:49 PM EDT ) A Miami-based movie theater chain filed for bankruptcy protection Saturday in Florida court, listing more than $100 million in debt after it closed its 41 theaters in response to the spread of the COVID-19 virus and walked away from a deal to buy another theater operator.
Cinemex Holdings USA Inc. operates the CMX Cinemas chain of theaters with more than 400 screens offering luxury dining and viewing amenities. It is a subsidiary of Mexican theater company Cinemex, which is one of the world's 10 largest cinema chains with more than 3,000 screens globally.
While it was forced to shutter all of its theaters in mid-March, Cinemex Holdings said in a statement that it has been dealing with revenue challenges for some time and that a restructuring would require changing the way those revenues are split among the theaters, their landlords and movie studios.
According to the statement, about 30% of the debtor's take is spent on lease obligations while another 60% is sent back to the movie studios that largely depend on the theaters for distribution of their films. The status quo will not support the industry, the company said, and it is asking for renegotiated deals with other stakeholders.
"The studios, landlords and theater companies must take this as an opportunity to place the industry on a sound, long-term financial footing," Cinemex said. "To do so, there needs to be a rebalancing of the current economic arrangements, which disproportionately benefit the studios and landlords at the expense of the theater companies."
The debtor said that despite gains in digital distribution, studios still earn the bulk of their revenue from theater exhibitions, and landlords at the malls where Cinemex theaters are primarily located will grow to depend more heavily on the debtor as retailers continue to struggle generally, and specifically in light of the pandemic.
The statement calls for a maximum of 40% of revenues to go to the studios and for a renegotiation of lease terms with landlords, who should treat the theaters more like the anchor stores of old.
The COVID-19 outbreak has injected uncertainty into the industry and Cinemex said it hopes the restructuring it is pursuing will help give it a stable foothold on which to return to operations once the pandemic has subsided.
The bankruptcy comes in the wake of a lawsuit filed by Star Cinema Grille in Texas federal court in early April accusing Cinemex Holdings of backing out of a deal to acquire the 10-theater chain due to concerns over the coronavirus spread. The suit accuses the debtor of using the pandemic as an excuse to kill the transaction even though Star Cinema alleges the disease was a key factor in negotiations between the parties before the deal was announced in mid-March.
The acquisition was pursued as part of Cinemex Holdings' expansion efforts and would have seen the chain grow to 51 locations in 13 states since its inception in 2017 with a single theater in Florida, according to a release at the time of the deal. If closed, the transaction would have made the debtor the seventh-largest theater operator in the U.S.
Star Cinema asked the Texas court to compel Cinemex Holdings to close on the sale, but the debtor told that court its bankruptcy filing triggered the automatic stay of litigation included in Chapter 11 protections. A brief filed by the debtor in Texas court on Saturday argued that the automatic stay pauses the litigation there and precludes the judge presiding over the lawsuit from issuing any orders.
The same day the deal was announced, Cinemex Holdings announced it would be closing its 41 CMX theaters because of the coronavirus and concerns about its spread in public gathering places. According to the Star Cinema suit, on March 24, Cinemex Holdings said it wouldn't be closing on the transaction because of the fallout from the disease.
Star Cinema owner Omar Khan said that during negotiations the coronavirus was a topic of discussions and Cinemex Holdings used the risk associated with the disease to secure a 10% reduction in the purchase price included in its initial offer.
Cinemex Holdings is represented by Jeffrey P. Bast of Bast Amron LLP.
The case is In re: Cinemex Holdings USA Inc., et al., case number 20-14696, in the U.S. Bankruptcy Court for the Southern District of Florida.
--Additional reporting by Katie Pohlman. Editing by Abbie Sarfo.
Update: This story has been updated with more information about Cinemex's bankruptcy filing and a statement from the debtor.
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